Hedge Funds and Private Investment Companies in the US Will Face New SEC Restrictions on Fee Disclosure

Sofya Kuhno, ACCA

Aug 25, 2023

The rules adopted this week will require private funds to detail quarterly fees and expenses to investors. Funds will also be prohibited from allowing some privileged investors to access money more easily than others (unless such deals are offered to all fund investors). This is another attempt by the Securities and Exchange Commission (SEC) under Gary Gensler to tighten control over the rapidly growing multi-trillion-dollar industry. The rule also prohibits funds from charging investors fees to cover KYC checks and regulatory compliance unless the investors themselves agree to these expenses. However, one of the significant changes is also that the SEC plans to abandon a provision that would make it easier for investors to sue fund managers. In an attempt to curb conflicts of interest, the regulator will also prohibit private funds from forcing any group of investors to bear an excessive share of fees beyond their fair share. These changes continue an era of increasing scrutiny over investment funds, which have rapidly expanded amid looser regulation and investors' search for higher returns. Hedge funds have stated that the SEC has repeatedly overstepped its authority under Gensler. The Managed Funds Association has said it may sue the regulator within weeks of finalizing the new rules if they are not significantly softened.

Source: Bloomberg.com